In: Accounting
Which of the following statements regarding absorption cost
pricing formulas is/are true?
i. Absorption cost pricing formulas provide a justifiable price
that tends to be perceived as equitable by all parties.
ii. Since absorption cost information is necessary for external
reporting, it is cost effective to use it for pricing.
iii. Absorption cost-plus pricing formulas generally will result in
a higher mark-up percentage than variable manufacturing cost
formulas.
All of the given answers |
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i and ii |
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i and iii |
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ii and iii |
Ans:
Absortion cost pricing refers to providing cost information of indirect costs along with direct costs to get better unit wise cost informations.
On the above three i and ii statements are true becuase:
i. Absorption cost pricing formulas provide a justifiable price
that tends to be perceived as equitable by all parties.
ii. Since absorption cost information is necessary for external
reporting, it is cost effective to use it for pricing.
but statement iii is not correct variable cost formulas will always provide higher unit contribution because absorption costing systems includes both variable and fixed costs components.
So correct answer is option B. (Statement i and ii)
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